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Citizens Financial Group, Inc. Reports Record First Quarter Net Income of $320 Million and Diluted EPS of $0.61

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Citizens Financial Group, Inc. (NYSE:CFG) today reported
first quarter net income of $320 million, up 43% from $223 million in
first quarter 2016 with earnings per diluted common share of $0.61, up
49% from $0.41 per diluted common share in first quarter 2016. Compared
with fourth quarter 2016, net income increased 13% from $282 million and
earnings per diluted common share increased 11% from $0.55. First
quarter 2017 results include a $23 million benefit, or $0.04 per diluted
common share, related to the settlement of certain state tax matters.
First quarter 2017 Return on Average Tangible Common Equity ("ROTCE")*
of 9.7% improved from 8.4% in fourth quarter 2016 and 6.6% in first
quarter 2016.

On an Underlying basis*, excluding the benefit of the state tax
settlement, first quarter 2017 net income of $297 million was up 5%
versus fourth quarter 2016 and 33% versus first quarter 2016. First
quarter 2017 earnings per diluted share of $0.57 was up 4% versus fourth
quarter 2016 and 39% versus first quarter 2016. First quarter 2017 ROTCE
of 9.0% improved by 0.6% relative to fourth quarter 2016, and 2.4%
relative to first quarter 2016.

"We are pleased to report another very strong quarter marking continued
progress in executing on our strategic initiatives," said Chairman and
Chief Executive Officer Bruce Van Saun. "We are firing on all cylinders,
with strong loan and deposit growth, solid net interest margin
expansion, excellent results in our fee based businesses, particularly
in Capital Markets, Global Markets, and Wealth Management, and good
control of expenses and credit costs. We also continue to deliver well
on our broader stakeholder agenda, with further progress on customer
satisfaction, colleague engagement and community impact. It's great to
get the year off to a strong start, and we remain confident in our full
year outlook."

Citizens also announced that its board of directors declared a second
quarter cash dividend of $0.14 per common share. The dividend is payable
on May 17, 2017 to shareholders of record at the close of business on
May 3, 2017.

*Please see important information on Key Performance Metrics and
Non-GAAP Financial Measures at the end of this release for an
explanation of our use of these metrics and non-GAAP financial measures
and their reconciliation to GAAP financial measures. "Underlying"
results exclude a $23 million benefit related to the settlement of
certain state tax matters in the first quarter 2017.

First Quarter 2017 vs. Fourth Quarter 2016

Key Highlights

  • First quarter highlights include an 11% increase in net income
    available to common stockholders, as 2% revenue growth was led by
    strong net interest income, reflecting continued loan growth and
    improved net interest margin. Results also reflect continued expense
    management discipline with nearly 1% positive operating leverage and a
    50 basis point improvement in the efficiency ratio to 62%. Provision
    expense decreased by $6 million, as net charge-offs dropped back to 33
    basis points of average loans. Results also reflect a 14% decrease in
    income tax expense driven by settlement of certain state tax matters.
  • Tangible book value per common share of $26.02 increased 1%. Fully
    diluted average common shares outstanding decreased by 2.5 million.

Results

  • Total revenue of $1.4 billion increased 2% with a 2% increase in net
    interest income and higher noninterest income led by strength in
    capital markets fees, card fees, and trust and investment services
    fees, despite the impact of seasonally lower service charges and fees.

    • Net interest income of $1.0 billion increased $19 million, driven
      by 1.5% growth in average loans and leases and loans held for sale
      and a six basis point increase in net interest margin to 2.96%,
      partially offset by the $14 million impact of lower day count.
    • Net interest margin improvement was driven by higher interest
      earning asset yields with improving loan mix towards higher-return
      assets, and the benefit of higher interest rates.
    • Noninterest income of $379 million improved $2 million, driven by
      higher capital markets fees, card fees and trust and investment
      services fees, despite the impact of seasonality and lower day
      count across service charges and fees.
  • Noninterest expense of $854 million increased 1%, primarily reflecting
    higher salaries and employee benefits expense given the impact of
    seasonally higher payroll taxes and 401(k) benefit costs. Results also
    reflect higher occupancy expense and a decrease in other operating
    expense, largely legal and regulatory costs, as well as lower outside
    services expense.
  • Provision for credit losses of $96 million improved 6% as the impact
    of lower net charge-offs was more than offset by an increase in the
    reserve for unfunded commitments.
  • Efficiency ratio improved 50 basis points to 62%; ROTCE of 9.7%, with
    ROTCE of 9.0% excluding the favorable impact of the settlement of
    certain state tax matters.*

Balance Sheet

  • Average interest-earning assets increased $1.7 billion, or 1%, driven
    by continued loan growth.
  • Average deposits increased $829 million, or 1%, reflecting growth in
    term, checking with interest and savings.
  • Nonperforming loans and leases ("NPLs") to total loans and leases
    ratio of 0.97% remained stable, reflecting a reduction in retail
    offset by an increase in commercial. Allowance coverage of NPLs of
    117% compares with 118%.
  • Net charge-offs of 33 basis points decreased six basis points from
    higher fourth quarter levels, which included the impact of a
    methodology change in auto, reflecting improvement in retail.
  • Robust capital strength with a common equity tier 1 ("CET1")
    risk-based capital ratio of 11.2%.
  • Repurchased 3.4 million shares of common stock in the quarter; as of
    March 31, 2017, had completed three quarters of the 2016 CCAR Capital
    plan with purchases of 20.7 million shares at a weighted-average price
    per share of $27.01, and including common dividends, return of $756
    million to shareholders.

First Quarter 2017 vs. First Quarter 2016

Key Highlights

  • First quarter results reflect a 45% increase in net income available
    to common stockholders, led by revenue growth of 12%, with strength in
    net interest income given 8% average loan growth and a ten basis point
    increase in net interest margin, as well as noninterest income growth
    of 15%.
  • Continued strong focus on top-line growth and expense management
    helped drive positive operating leverage of 7%, a four percentage
    point improvement in the efficiency ratio and more than a three
    percentage point improvement in ROTCE, while continuing to reinvest in
    technology and business initiatives to improve our products and
    services and drive future growth.*
  • Provision expense increased by $5 million, largely reflecting the
    continued return to more normalized net charge-off levels.
  • Results also reflect a 6.5% reduction in the income tax rate driven by
    the settlement of certain state tax matters.
  • Fully diluted average common shares outstanding decreased by 19.1
    million.

Results

  • Total revenue of $1.4 billion increased $150 million, or 12%,
    reflecting solid net interest income and noninterest
    income
    growth.

    • Net interest income increased 11% given 8% average loan growth and
      a ten basis point improvement in net
      interest margin.
    • Net interest margin of 2.96% reflects improved loan yields, driven
      by higher rates and balance sheet optimization initiatives,
      partially offset by investment portfolio growth and higher deposit
      costs.
    • Noninterest income increased 15%, driven by strength in capital
      markets, card fees, foreign exchange and interest rate products
      and mortgage banking fees.
  • Noninterest expense increased 5%, driven by higher salaries and
    employee benefits related to higher payroll taxes and 401(k) benefit
    costs, largely tied to a change in the timing of incentive payments,
    higher revenue-based incentives and increases in other categories
    given continued investments in the franchise, as well as higher FDIC
    insurance, fraud and regulatory costs.
  • Provision for credit losses increased $5 million, or 5%, as the impact
    of higher commercial net charge-offs, largely commodities-related
    credits and an increase in the reserve for unfunded commitments were
    partially offset by a reduction in retail real-estate secured net
    charge-offs.
  • ROTCE* of 9.7% improved by 3.1%. Excluding the impact related to
    settlement of certain state tax matters, ROTCE of 9.0% improved by
    2.4%.

Balance Sheet

  • Average interest-earning assets increased $10.2 billion, or 8%, driven
    by 8% loan growth and a 9% increase in the investment portfolio.
  • Average deposits increased $8.0 billion, or 8%, on strength in
    checking with interest, term, money market and demand deposits.
  • NPLs to total loans and leases ratio of 0.97% improved from 1.07%, as
    an underlying reduction in retail nonperforming loans more than offset
    an increase in commercial nonperforming loans, largely
    commodities-related credits. Allowance coverage of NPLs of 117%
    compares with 113%.
  • Net charge-offs of 33 basis points of loans were stable with the
    prior-year quarter, reflecting continued improvement in retail,
    partially offset by an increase in commercial that represents
    continued normalization from lower charge-off levels.

Update on Plan Execution

Consumer Banking

  • Performance paced by solid loan growth with continued traction in
    education, mortgage and unsecured retail, along with increased loan
    yields, reflecting improving mix and higher rates.
  • Wealth management business continues to build scale and add
    capabilities, with fee income growth up 13% versus fourth quarter
    2016. Positive trend continues in migrating sales mix from transaction
    to fee-based sales.
  • Mortgage loan officer recruiting continues to track well, with an
    increase of 22 mortgage loan officers in the quarter to 560.
  • We continue to see strong momentum in our efforts to use the Citizens
    Checkup program to build and deepen relationships with our Consumer
    customers. Customer satisfaction remains high and program metrics
    continue to track well against expectations.

Commercial Banking

  • Very strong year-over-year performance across our fee-based activities
    led by Capital Markets, Foreign Exchange and Interest Rate Products,
    demonstrates the quality, strength and potential of our Commercial
    business model.
  • Continue to grow our balance sheet and add new customers, with 10%
    average loan growth from the year-ago quarter, reflecting strength in
    Commercial Real Estate, Mid-corporate and Middle Market, Franchise
    Finance and Industry Verticals. In addition, average deposit growth
    was 17% versus the prior-year quarter. Continue to add coverage
    bankers to expand expertise in industry groups and to extend
    geographic reach.

Efficiency and balance sheet optimization
strategies

  • Tapping Our Potential ("TOP") III continues to deliver benefits and is
    on track to meet targeted pre-tax revenue and expense run-rate
    benefits of $100 million to $115 million, including $20 million of tax
    benefits in 2017. Have commenced efforts on TOP IV.
  • Initiatives to shift loan portfolio mix to higher-return categories
    continue to deliver benefits. Focused on initiatives to gather
    lower-cost deposits and minimize funding costs.
               
 
Earnings highlights 1Q17 change from
($s in millions, except per share data)     1Q17   4Q16   1Q16 4Q16 1Q16
Earnings $ % $ %
Net interest income $ 1,005 $ 986 $ 904 $ 19 2 % $ 101 11 %
Noninterest income 379 377 330 2 1 49 15
Total revenue 1,384 1,363 1,234 21 2 150 12
Noninterest expense 854 847 811 7 1 43 5
Pre-provision profit 530 516 423 14 3 107 25
Provision for credit losses       96       102       91     (6 ) (6 )   5   5
Net income 320 282 223 38 13 97 43
Preferred dividends 7 7 7 100
Net income available to common stockholders       313       282       216     31   11   97   45
Average common shares outstanding
Basic (in millions) 509.5 512.0 528.1 (2.6 ) (1 ) % (18.6 ) (4 ) %
Diluted (in millions) 511.3 513.9 530.4 (2.5 ) (19.1 ) (4 )
Diluted earnings per share     $ 0.61     $ 0.55     $ 0.41   $ 0.06   11 $ 0.20   49
Key performance metrics*
Net interest margin 2.96 % 2.90 % 2.86 % 6 bps 10 bps
Effective income tax rate 26.4 31.9 32.9 (554 ) (651 )
Efficiency ratio 62 62 66 (50 ) (398 )
Return on average common equity 6.5 5.7 4.5 82 207
Return on average tangible common equity 9.7 8.4 6.6 125 307
Return on average total assets 0.87 0.76 0.65 11 22
Return on average total tangible assets       0.91 %     0.79 %     0.68 % 12 bps 23 bps
Capital adequacy(1,2)
Common equity tier 1 capital ratio 11.2 % 11.2 % 11.6 %
Total capital ratio 14.0 14.0 15.1
Tier 1 leverage ratio       9.9 %     9.9 %     10.4 %
Asset quality(2)
Total nonperforming loans and leases as a % of total loans and leases 0.97 % 0.97 % 1.07 % bps (10 ) bps
Allowance for loan and lease losses as a % of loans and leases 1.13 1.15 1.21 (2 ) (8 )
Allowance for loan and lease losses as a % of nonperforming loans
and leases
117 118 113 (172 ) 317
Net charge-offs as a % of average loans and leases       0.33 %     0.39 %     0.33 % (6 ) bps bps

1) Current reporting-period regulatory capital ratios are
preliminary. Basel III ratios assume that certain definitions
impacting qualifying Basel III capital will phase in through 2019.

2) Capital adequacy and asset-quality ratios calculated on a
period-end basis, except net charge-offs.

 

Discussion of Results:

First quarter 2017 net income available to common stockholders of $313
million increased $31 million, or 11%, versus fourth quarter 2016, and
diluted EPS of $0.61 increased $0.06, or 11%. First quarter 2017 results
reflect the impact of a $23 million, or $0.04 EPS benefit, related to
the settlement of certain state tax matters. First quarter 2017 EPS
reflects a 2.5 million reduction in fully diluted average common shares
outstanding.

Compared with first quarter 2016 levels, net income available to common
stockholders increased $97 million, or 45%, as the benefit of 12%
increase in revenue and a reduction in income taxes was partially offset
by a 5% increase in noninterest expense and provision for credit losses.
Diluted EPS of $0.61 increased $0.20, or 49%, reflecting net income
growth and a 19.1 million reduction in average fully diluted shares
outstanding.

               
Net interest income 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Interest income:
Interest and fees on loans and leases and loans held for sale $ 997 $ 968 $ 872 $ 29 3 % $ 125 14 %
Investment securities 160 152 145 8 5 15 10
Interest-bearing deposits in banks       3       2       2     1 50   1   50
Total interest income     $ 1,160     $ 1,122     $ 1,019   $ 38 3 % $ 141   14 %
Interest expense:
Deposits 86 76 60 10 13 % 26 43 %
Federal funds purchased and securities sold under agreements to
repurchase
1 1 1 100
Other short-term borrowed funds 8 7 11 1 14 (3 ) (27 )
Long-term borrowed funds       60       53       43     7 13   17   40
Total interest expense     $ 155     $ 136     $ 115   $ 19 14 % $ 40   35 %
Net interest income     $ 1,005     $ 986     $ 904   $ 19 2 % $ 101   11 %
Net interest margin       2.96 %     2.90 %     2.86 %   6 bps   10   bps
 

Net interest income of $1.0 billion increased $19 million, or 2%, from
fourth quarter 2016, given a 1.5% increase in average loans and leases
and loans held for sale and a six basis point improvement in net
interest margin, which were partially offset by the impact of lower day
count of $14 million. The improvement in net interest margin reflects
the benefit of higher commercial and consumer loan yields given higher
interest rates and continued portfolio mix shift towards higher-return
assets, as well as improved investment yields, partially offset by
higher funding costs.

Compared to first quarter 2016, net interest income increased $101
million, or 11%, reflecting 8% average loan growth and a ten basis point
improvement in net interest margin. The improvement in net interest
margin reflects the benefit of higher commercial and consumer loan
yields given higher interest rates and balance sheet optimization
initiatives, partially offset by the impact of securities portfolio
growth and higher deposit and funding costs.

               
Noninterest Income 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Service charges and fees $ 125 $ 132 $ 126 $ (7 ) (5 ) % $ (1 ) (1 ) %
Card fees 60 50 50 10 20 10 20
Capital markets fees 48 37 25 11 30 23 92
Trust and investment services fees 39 34 37 5 15 2 5
Letter of credit and loan fees 29 29 27 2 7
Foreign exchange and interest rate products 27 31 18 (4 ) (13 ) 9 50
Mortgage banking fees 23 36 18 (13 ) (36 ) 5 28
Securities gains, net 4 3 9 1 33 (5 ) (56 )
Other income(1)       24     25     20   (1 ) (4 )   4   20
Noninterest income     $ 379   $ 377   $ 330 $ 2   1 % $ 49   15 %

1) Other income includes bank-owned life insurance and other
income.

 

Noninterest income of $379 million improved $2 million from fourth
quarter 2016, reflecting an increase in capital markets fees, card fees
and trust and investment services fees, partially offset by a reduction
in mortgage banking fees and the impact of seasonality and lower day
count on service charges and fees. Service charges and fees decreased $7
million, reflecting the impact of seasonality and lower day count. Card
fees increased $10 million, reflecting revised contract terms commencing
this quarter for core processing fees, and a reduction in card reward
expense which more than offset the impact of seasonally lower purchase
volumes. Capital markets fees increased $11 million, driven by strong
results in loan syndications, bond underwriting and advisory fees. Trust
and investment services fees increased $5 million driven by higher sales
volume given increased wealth advisory staffing. Foreign exchange and
interest rate products income decreased $4 million from strong fourth
quarter levels. Mortgage banking fees decreased $13 million from fourth
quarter levels that included improved mortgage servicing rights ("MSR")
valuations and higher origination volumes.

Noninterest income improved $49 million, or 15%, from first quarter 2016
levels, driven by strength in capital markets fees, card fees, foreign
exchange and interest rate products income and improved mortgage banking
fees. Service charges and fees remained relatively stable despite one
fewer day in the quarter. Card fees increased $10 million as the benefit
of revised contract terms commencing this quarter for core processing
fees, and a reduction in card reward expense was partially offset by
lower out-of-network ATM fees. Capital markets fees increased $23
million, reflecting strength in loan syndications and underwriting fees
given strong market volume and expanded capabilities. Trust and
investment services fees improved, reflecting an increase in investment
sales and growth in client-asset levels. Foreign exchange and interest
rate products income increased $9 million, or 50%, reflecting strong
client hedging activity and expanded capabilities. Mortgage banking fees
increased $5 million, reflecting improved MSR valuations and higher
origination volumes given the increase in loan officers. Securities
gains decreased $5 million.

               
Noninterest expense 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Salaries and employee benefits $ 444 $ 420 $ 425 $ 24

6

%

$ 19

4

%

Outside services 91 98 91 (7 ) (7 )
Occupancy 82 77 76 5 6 6 8
Equipment expense 67 69 65 (2 ) (3 ) 2 3
Amortization of software 44 44 39 5 13
Other operating expense       126     139     115   (13 ) (9 )   11 10
Noninterest expense     $ 854   $ 847   $ 811 $ 7  

1

%

 

$ 43

5

%

 

Noninterest expense of $854 million increased $7 million, or 1%, from
fourth quarter 2016, driven by higher salaries and employee benefits
expense given the impact of seasonally higher payroll taxes and 401(k)
benefit costs. Results also reflect higher occupancy expense and a
decrease in other expense and outside services expense. Outside services
expense decreased $7 million, largely reflecting the impact of our
ongoing efficiency initiatives. Occupancy expense increased $5 million,
reflecting costs associated with branch rationalization and seasonally
higher maintenance costs. Other expense decreased $13 million, largely
reflecting lower insurance, fraud and regulatory costs.

Compared with first quarter 2016, noninterest expense increased $43
million, or 5%, driven by higher payroll taxes and 401(k) benefit costs
tied to a change in the timing of incentive payments, as well as higher
revenue-based incentives. Occupancy expense increased $6 million, driven
by branch rationalization costs. Amortization of software expense
increased $5 million, reflecting the impact of technology investments.
Other expense increased $11 million, related to higher FDIC insurance
expense and higher fraud and regulatory costs.

The effective tax rate for first quarter 2017 of 26.4% compares with
31.9% in fourth quarter 2016 and 32.9% in first quarter 2016. First
quarter 2017 results reflect the impact of a $23 million, or 5.2 per
cent, rate benefit related to the settlement of certain state tax
matters.

               
Consolidated balance sheet review(1) 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Total assets $ 150,285 $ 149,520 $ 140,077 $ 765 1 % $ 10,208 7 %
Loans and leases and loans held for sale 108,780 108,294 101,742 486 7,038 7
Deposits 112,112 109,804 102,606 2,308 2 9,506 9
Average interest-earning assets (quarterly) 136,410 134,758 126,165 1,652 1 10,245 8
Stockholders' equity 19,847 19,747 19,965 100 1 (118 ) (1 )
Stockholders' common equity 19,600 19,499 19,718 101 1 (118 ) (1 )
Tangible common equity $ 13,258 $ 13,154 $ 13,333 $ 104 1 % $ (75 ) (1 ) %
Loan-to-deposit ratio (period-end)(2)

97.0

%

98.6 % 99.2 % (159 ) bps (213 ) bps
Common equity tier 1 capital ratio(3) 11.2 11.2 11.6
Total capital ratio(3)       14.0 %     14.0 %     15.1 %                  

1) Represents period end unless otherwise noted.

2) Includes loans held for sale.

3) Current reporting period regulatory capital ratios are
preliminary. Basel III ratios assume that certain definitions
impacting qualifying Basel III capital will phase in through 2019.

 

Total assets of $150.3 billion increased $765 million, or 1%, from
December 31, 2016, driven by a $660 million increase in investment
portfolio assets and a $486 million increase in loans and leases and
loans held for sale, partially offset by a $393 million reduction in
other non-earning assets, largely derivatives tied to a change in the
classification of margin payments. Compared with March 31, 2016, total
assets increased $10.2 billion, or 7%, driven by a $7.0 billion increase
in loans and leases and loans held for sale, as well as a $3.9 billion
increase in investment portfolio assets, partially offset by a $681
million reduction in other non-earning assets, largely derivatives tied
to a change in the classification of margin payments.

Average interest-earning assets of $136.4 billion in first quarter 2017
increased $1.7 billion, or 1%, from the prior quarter, driven by a $1.0
billion increase in commercial loans and leases, a $529 million increase
in retail loans and a $94 million increase in investment portfolio
assets. Compared to first quarter 2016, average interest-earning assets
increased $10.2 billion, or 8%, driven by commercial loan growth of $5.0
billion, retail loan growth of $2.8 billion and a $2.2 billion increase
in investment portfolio assets, including a $1.9 billion increase in
securities and a $290 million increase in interest-bearing cash.

               
Interest-earning assets 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
Period-end interest-earning assets $   % $   %
Investments and interest-bearing deposits $ 29,458 $ 28,798 $ 25,607 $ 660

2

%

$ 3,851

15

%

Commercial loans and leases 51,892 51,651 47,972 241 3,920 8
Retail loans 56,219 56,018 53,019 201 3,200 6
Total loans and leases 108,111 107,669 100,991 442 7,120 7
Loans held for sale, at fair value 448 583 365 (135 ) (23 ) 83 23
Other loans held for sale 221 42 386 179 NM (165 ) (43 )
Total loans and leases and loans held for sale       108,780     108,294     101,742   486     7,038   7
Total period-end interest-earning assets     $ 138,238   $ 137,092   $ 127,349 $ 1,146  

1

%

$ 10,889  

9

%

Average interest-earning assets
Investments and interest-bearing deposits $ 27,761 $ 27,667 $ 25,548 $ 94

%

$ 2,213

9

%

Commercial loans and leases 52,034 51,032 47,043 1,002 2 4,991 11
Retail loans 56,031 55,502 53,219 529 1 2,812 5
Total loans and leases 108,065 106,534 100,262 1,531 1 7,803 8
Loans held for sale, at fair value 510 551 306 (41 ) (7 ) 204 67
Other loans held for sale 74 6 49 68 NM 25 51
Total loans and leases and loans held for sale       108,649     107,091     100,617   1,558   1   8,032   8
Total average interest-earning assets     $ 136,410   $ 134,758   $ 126,165 $ 1,652  

1

%

$ 10,245  

8

%

 

Period-end investments and interest-bearing deposits of $29.5 billion as
of March 31, 2017 increased $660 million, or 2%, compared with December
31, 2016, reflecting a $386 million increase in securities and a $274
million increase in cash positions. Compared with March 31, 2016,
investments and interest-bearing deposits increased $3.9 billion, or
15%, including a $1.9 billion increase in securities and $1.9 billion
increase in cash and equivalents. At the end of first quarter 2017, the
average effective duration of the securities portfolio increased to 4.4
years compared with 4.3 years at December 31, 2016 and 2.9 years at
March 31, 2016, reflecting the impact of higher long-term rates, which
reduced mortgage security prepayment speeds.

Period-end loans and leases of $108.1 billion at March 31, 2017
increased $442 million, or 0.4%, from $107.7 billion at December 31,
2016 and increased $7.1 billion, or 7%, from $101.0 billion at March 31,
2016. The linked-quarter change was driven by a $241 million increase in
commercial loans and leases and a $201 million increase in retail loans.
The change from the prior-year period reflects a $3.9 billion increase
in commercial loans and leases and a $3.2 billion increase in retail
loans.

Average loans and leases increased $1.5 billion, or 1.5%, from fourth
quarter 2016, reflecting a $1.0 billion increase in commercial loans and
leases and a $529 million increase in retail loans. Commercial loan and
lease growth was largely driven by strength in Commercial Real Estate,
Mid-corporate and Middle Market, Franchise Finance and Industry
Verticals. Retail loan growth reflects strength in education, mortgage
and other unsecured retail loans, partially offset by lower home equity
and auto balances.

Compared with first quarter 2016, average loans and leases of $108.1
billion increased $7.8 billion, or 8%, reflecting a $5.0 billion
increase in commercial loans and leases and a $2.8 billion increase in
retail loans. Commercial loan and lease growth was driven by strength in
Mid-corporate and Middle Market, Commercial Real Estate, Franchise
Finance and Industry Verticals. Retail loan growth was driven by
education, mortgage and other unsecured retail, partially offset by
lower home equity balances.

         
Deposits 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16   1Q16
Period-end deposits $   % $   %
Demand deposits $ 27,713 $ 28,472 $ 27,186 $ (759 )  

(3

)%

$ 527  

2

%

Checking with interest 21,913 20,714 18,706 1,199 6 3,207 17
Savings 9,441 8,964 8,748 477 5 693 8
Money market accounts 37,833 38,176 35,513 (343 ) (1 ) 2,320 7
Term deposits       15,212     13,478     12,453   1,734   13   2,759 22
Total period-end deposits     $ 112,112   $ 109,804   $ 102,606 $ 2,308  

2

%

$ 9,506

9

%

Average deposits
Demand deposits $ 28,098 $ 28,443 $ 27,170 $ (345 )

(1

)%

$ 928

3

%

Checking with interest 20,699 20,268 17,993 431 2 2,706 15
Savings 9,110 8,826 8,394 284 3 716 9
Money market accounts 37,874 38,397 36,225 (523 ) (1 ) 1,649 5
Term deposits       14,173     13,191     12,199     982   7   1,974 16
Total average deposits     $ 109,954   $ 109,125   $ 101,981   $ 829  

1

%

$ 7,973

8

%

 

Total period-end deposits of $112.1 billion at March 31, 2017 increased
$2.3 billion, or 2%, from December 31, 2016, driven by growth in term
deposits, checking with interest and savings, partially offset by a
decrease in demand deposits and money market accounts. Compared with
March 31, 2016, period-end total deposits increased $9.5 billion, or 9%,
reflecting growth across checking with interest, term deposits and money
market accounts.

First quarter 2017 average deposits of $110.0 billion increased $829
million, or 1%, from fourth quarter 2016, given growth in checking with
interest, savings and term deposits. Compared with first quarter 2016,
average deposits increased $8.0 billion, or 8%, reflecting growth in all
categories.

               
Borrowed funds 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
Period-end borrowed funds $   % $   %
Federal funds purchased and securities sold under agreements to
repurchase
$ 1,093 $ 1,148 $ 714 $ (55 )

(5

)%

$ 379

53

%

Other short-term borrowed funds 2,762 3,211 3,300 (449 ) (14 ) (538 ) (16 )
Long-term borrowed funds       11,780     12,790     10,035   (1,010 ) (8 )   1,745   17
Total borrowed funds     $ 15,635   $ 17,149   $ 14,049 $ (1,514 )

(9

)%

$ 1,586  

11

%

 
Average borrowed funds     $ 16,257   $ 15,210   $ 13,873 $ 1,047  

7

%

$ 2,384  

17

%

 

Total borrowed funds of $15.6 billion at March 31, 2017 decreased $1.5
billion from December 31, 2016, largely reflecting a $1.0 billion
decrease in long-term borrowings, as well as a $449 million reduction in
short-term Federal Home Loan Bank ("FHLB") borrowings. Compared with
March 31, 2016, total borrowed funds increased $1.6 billion, as a $1.7
billion increase in long-term borrowings, largely reflecting senior debt
issuance, was partially offset by a reduction in other short-term
borrowings, largely short-term FHLB advances.

Average borrowed funds of $16.3 billion increased $1.0 billion from
fourth quarter 2016, as a $1.9 billion increase in long-term FHLB
borrowings was partially offset by a $1.0 billion reduction in
short-term FHLB borrowings. Compared with first quarter 2016, average
borrowed funds increased $2.4 billion, as a $2.5 billion increase in
long-term borrowings reflecting an increase in senior debt and FHLB
advances was partially offset by a reduction in short-term borrowed
funds, largely FHLB advances.

               
Capital 1Q17 change from
($s and shares in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
Period-end capital $   % $   %
Stockholders' equity $ 19,847 $ 19,747 $ 19,965 $ 100 1 % $ (118 ) (1 ) %
Stockholders' common equity 19,600 19,499 19,718 101 1 (118 ) (1 )
Tangible common equity 13,258 13,154 13,333 104 1 (75 ) (1 )
Tangible book value per common share $ 26.02 $ 25.69 $ 25.21 $ 0.33 1 $ 0.81 3
Common shares - at end of period 509.5 512.0 528.9 (2.4 ) (19.4 ) (4 )
Common shares - average (diluted) 511.3 513.9 530.4 (2.5 ) %

(19.1

)

 

(4 ) %
Common equity tier 1 capital ratio(1,2) 11.2

%

11.2 % 11.6 %
Total capital ratio(1,2) 14.0 14.0 15.1
Tier 1 leverage ratio(1,2)       9.9 %     9.9 %     10.4 %            

1) Current reporting-period regulatory capital ratios are
preliminary

2) Basel III ratios assume that certain definitions impacting
qualifying Basel III capital will phase in through 2019.

 

On March 31, 2017, our Basel III capital ratios on a transitional basis
remained well in excess of applicable regulatory requirements with a
CET1 capital ratio of 11.2% and a total capital ratio of 14.0%. Our
capital ratios continue to reflect progress against our objective of
realigning our capital profile to be more consistent with that of peer
regional banks, while maintaining a strong capital base to support our
growth aspirations, strategy and risk appetite. Tangible book value per
common share of $26.02 increased 1% versus fourth quarter 2016 and 3%
versus first quarter 2016.

As part of CFG's 2016 Capital Plan (the "Plan"), during the first
quarter 2017 the company repurchased 3.4 million shares of common stock
and, including common dividends, returned $202 million to shareholders;
as of March 31, 2017, CFG had completed three quarters of the 2016 CCAR
Capital plan with purchases of 20.7 million shares at a weighted-average
price per share of $27.01, and including common dividends, return of
$756 million to CFG shareholders. The Plan includes the repurchase of up
to $690 million of Citizens' outstanding common stock beginning in third
quarter 2016 through second quarter 2017 with $130 million in remaining
availability as of March 31, 2017. In accordance with the Plan, the
company paid quarterly dividends of $0.12 per common share in the third
and fourth quarters of 2016 and $0.14 per common share in first quarter
of 2017. Future capital actions are subject to consideration and
approval by CFG's Board of Directors.

               
Credit quality review 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$ % $ %
Nonperforming loans and leases $ 1,050 $ 1,045 $ 1,079 $ 5 % $ (29 ) (3

)%

Net charge-offs 87 104 83 (17 ) (16 ) 4 5
Provision for credit losses 96 102 91 (6 ) (6 ) 5 5
Allowance for loan and lease losses $ 1,224 $ 1,236 $ 1,224 $ (12 ) (1 ) % $ %
Total nonperforming loans and leases

as a % of total loans and leases

0.97 % 0.97 % 1.07 % bps (10 ) bps
Net charge-offs as % of total loans and leases 0.33 0.39 0.33 (6 ) bps bps
Allowance for loan and lease losses as a % of total loans and leases 1.13 % 1.15 % 1.21 % (2 ) bps (8 ) bps
Allowance for loan and lease losses as a % of nonperforming loans
and leases
      116.60 %     118.32 %     113.43 %   (172 ) bps         317   bps    
 

Overall credit quality continued to improve reflecting the benefit of
growth in higher quality, lower risk retail loans and modest increases
in commercial categories. Nonperforming loans of $1.1 billion increased
slightly from December 31, 2016, as a $21 million decrease in retail,
driven by continued improvement in real-estate secured categories, was
more than offset by a $26 million increase in commercial, largely
commodities-related credits. Compared to March 31, 2016, nonperforming
loans and leases decreased $29 million as a decrease in retail, largely
tied to real-estate secured categories, was partially offset by an
increase in commercial, largely commodities-related credits. The
nonperforming loans and leases to total loans and leases ratio of 0.97%
at March 31, 2017 was stable with December 31, 2016 levels and decreased
ten basis points from 1.07% at March 31, 2016.

Net charge-offs of $87 million decreased $17 million driven by an $8
million reduction in auto from higher fourth quarter 2016 levels, which
included a $7 million impact tied to a methodology change, a reduction
in retail real-estate secured categories and a decrease in education net
charge-offs from seasonally higher fourth quarter levels. Compared with
first quarter 2016, net charge-offs increased $4 million, driven by a
$10 million increase in commercial, partially offset by a $6 million
reduction in retail net charge-offs in real-estate secured categories.
First quarter 2017 net charge-offs of 33 basis points of average loans
and leases compares with 39 basis points in fourth quarter 2016 and 33
basis points in first quarter 2016.

Allowance for loan and lease losses of $1.2 billion decreased modestly
compared to fourth quarter 2016 and was stable with first quarter 2016
levels, largely reflecting continued improvement in credit quality and
the impact of loan growth.

Allowance for loan and lease losses to total loans and leases was 1.13%
as of March 31, 2017, relatively stable compared with 1.15% as of
December 31, 2016 and down modestly from 1.21% as of March 31, 2016. The
allowance for loan and lease losses to nonperforming loans and leases
ratio of 117% as of March 31, 2017 remained relatively stable compared
to 118% as of December 31, 2016 and up from 113% as of March 31, 2016.

               

Additional Segment Detail:

 
Consumer Banking Segment 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Net interest income $ 638 $ 639 $ 581 $ (1 ) % $ 57

10

%

Noninterest income       220       227       208     (7 ) (3 )   12   6
Total revenue 858 866 789 (8 ) (1 ) 69 9
Noninterest expense       647       649       616     (2 )   31   5
Pre-provision profit 211 217 173 (6 ) (3 ) 38 22
Provision for credit losses       64       74       63     (10 ) (14 )   1   2
Income before income tax expense 147 143 110 4 3 37 34
Income tax expense       52       51       39     1   2   13   33
Net income     $ 95     $ 92     $ 71   $ 3   3 % $ 24  

34

%

 
Average balances                  
Total loans and leases (1) $ 57,309 $ 56,711 $ 53,744 $ 598

1

%

$ 3,565

7

%

Total deposits     $ 74,133     $ 73,124     $ 70,871   $ 1,009  

1

%

$ 3,262  

5

%

 
Key performance metrics*                  
ROTCE (2) 7.1 % 7.0 % 5.6 % 9 bps 147 bps
Efficiency ratio 75 % 75 % 78 % 51 bps (267 ) bps
Loan-to-deposit ratio (period-end)(1)       75.7 %     77.3 %     74.7 %   (167 ) bps   92   bps

1) Includes held for sale.

2) Operating segments are allocated capital on a risk-adjusted
basis considering economic and regulatory capital requirements. We
approximate that regulatory capital is equivalent to a sustainable
target level of common equity tier 1 and then allocate that
approximation to the segments based on economic capital.

 

Consumer Banking net income of $95 million in first quarter 2017
increased $3 million, or 3%, versus fourth quarter 2016, reflecting a
decrease in revenue and stable noninterest expense and a 14% decrease in
provision for credit losses. Net interest income remained relatively
stable versus fourth quarter 2016 as the benefit of higher education,
mortgage and other unsecured retail loan balances and improved loan
yields was partially offset by the impact of fewer days and an increase
in deposit costs. Noninterest income decreased $7 million as a reduction
in mortgage banking fees from fourth quarter levels that included
improved MSR valuations and origination volumes as well as seasonally
lower service charges more than offset an increase in card fees, which
was driven by revised contract terms commencing this quarter for core
processing fees and a reduction in card reward expense, as well as
higher trust and investment services fees.

Noninterest expense remained relatively stable with fourth quarter 2016,
as an increase in salaries and employee benefit costs, given the impact
of seasonally higher payroll taxes and 401(k) benefit costs, and higher
occupancy costs associated with branch rationalization and seasonally
higher maintenance costs were largely offset by lower outside services
expense and a reduction in other operating expense, largely regulatory
and fraud. Provision for credit losses decreased $10 million, largely
driven by improvements in auto from higher fourth quarter levels, which
included a $7 million increase related to a methodology change.

Compared with first quarter 2016, net income increased $24 million, or
34%, reflecting a $69 million increase in total revenue that more than
offset a $31 million increase in noninterest expense. Net interest
income increased $57 million, or 10%, driven by a $3.6 billion increase
in average loans led by education, mortgage and other consumer unsecured
categories with higher loan yields that included the benefit of higher
rates, partially offset by an increase in deposit costs. Noninterest
income increased $12 million from first quarter 2016, driven by an
increase in card fees, which included the benefit of revised contract
terms commencing this quarter for core processing fees and a reduction
in card reward expense, as well as an increase in mortgage banking fees,
which reflected higher MSR valuations and improved origination volumes.
Noninterest expense increased $31 million, or 5%, largely driven by an
increase in salaries and employee benefits tied to higher commissions
and payroll taxes as well as other expenses largely tied to insurance
and fraud and regulatory costs. Results also reflect higher occupancy
costs associated with branch rationalization as well as outside
services, driven by retail loan origination and serving costs. Provision
for credit losses increased $1 million from first quarter 2016, largely
driven by higher net charge-offs in auto and education.

               
Commercial Banking Segment 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$ % $ %
Net interest income $ 346 $ 347 $ 300 $ (1 )

%

$ 46

15

%

Noninterest income       134       122       99     12   10   35   35
Total revenue 480 469 399 11 2 81 20
Noninterest expense       190       187       187     3   2   3   2
Pre-provision profit 290 282 212 8 3 78 37
Provision for credit losses       19       20       9     (1 ) (5 )   10   111
Income before income tax expense 271 262 203 9 3 68 33
Income tax expense       91       90       70     1   1   21   30
Net income     $ 180     $ 172     $ 133   $ 8  

5

%

$ 47  

35

%

 
Average balances                  
Total loans and leases (1) $ 48,154 $ 47,010 $ 43,899 $ 1,144

2

%

$ 4,255

10

%

Total deposits     $ 28,973     $ 29,410     $ 24,833   $ (437 )

(1

)%

$ 4,140  

17

%

 
Key performance metrics*                  
ROTCE (2) 13.2 % 12.9 % 11.2 % 24 bps 199 bps
Efficiency ratio 40 % 40 % 47 % (3 ) bps (694 ) bps
Loan-to-deposit ratio (period-end)(1)       165.1 %     166.2 %     185.1 %   (116 ) bps   (2,004 ) bps

1) Includes held for sale.

2) Operating segments are allocated capital on a risk-adjusted
basis considering economic and regulatory capital requirements. We
approximate that regulatory capital is equivalent to a sustainable
target level for common equity tier 1 and then allocate that
approximation to the segments based on economic capital.

 

Commercial Banking net income of $180 million in first quarter 2017
increased $8 million from fourth quarter 2016, reflecting an $11 million
increase in total revenue, a $3 million increase in noninterest expense
and relatively stable provision for credit losses. Net interest income
of $346 million remained relatively stable as the benefit of loan growth
and loan yields was offset by the impact of an increase in deposit costs
and one fewer day in the quarter. Average loans and leases increased
$1.1 billion, driven by growth in Commercial Real Estate, Mid-corporate
and Middle Market, Franchise Finance and Industry Verticals. Noninterest
income increased $12 million, or 10%, reflecting strength in capital
markets and modest improvements in card fees and service charges, which
more than offset lower foreign exchange and interest rate products
income from strong fourth quarter levels. Noninterest expense increased
$3 million, or 2%, largely reflecting higher salaries and benefits
expense tied to seasonally higher payroll taxes and 401(k) benefit costs
and incentive compensation. Provision for credit losses improved $1
million.

Compared to first quarter 2016, net income increased $47 million, or
35%, driven by an $81 million increase in total revenue, partially
offset by a $3 million increase in noninterest expense and a $10 million
increase in provision for credit losses. Net interest income increased
$46 million, or 15%, from first quarter 2016, driven by 10% average loan
growth and improved loan yields, partially offset by higher deposit
costs. Average loans and leases increased $4.3 billion, driven by
strength in Mid-corporate and Middle Market, Commercial Real Estate,
Franchise Finance and Industry Verticals. Noninterest income increased
$35 million from first quarter 2016 levels, largely reflecting strength
in capital markets, foreign exchange and interest rate products income
and card fees. Noninterest expense increased $3 million from first
quarter 2016, driven by higher salaries and employee benefits largely
tied to higher payroll taxes given the change in timing of incentive
compensation. Expense results also reflected higher amortization of
software and a reduction in outside services. Provision for credit
losses increased $10 million from first quarter 2016, driven by
increased losses.

               
Other(1) 1Q17 change from
($s in millions)     1Q17   4Q16   1Q16 4Q16 1Q16
$   % $   %
Net interest income $ 21 $ $ 23 $ 21

100

%

$ (2 )

(9

)%

Noninterest income       25       28       23   (3 ) (11 )   2   9
Total revenue 46 28 46 18 64
Noninterest expense       17       11       8   6   55   9   113
Pre-provision profit (loss) 29 17 38 12 71 (9 ) (24 )
Provision for credit losses       13       8       19   5   63   (6 ) (32 )
Income (loss) before income tax expense (benefit) 16 9 19 7 78 (3 ) (16 )
Income tax expense (benefit)       (29 )     (9 )       (20 ) (222 )   (29 ) (100 )
Net income (loss)     $ 45     $ 18     $ 19 $ 27   150 $ 26   137
 
Average balances                  
Total loans and leases (2) $ 3,186 $ 3,370 $ 2,974 $ (184 )

(5

)%

$ 212

7

%

Total deposits     $ 6,848     $ 6,591     $ 6,277 $ 257  

4

%

$ 571  

9

%

1) Includes the financial impact of non-core, liquidating loan
portfolios and other non-core assets, our treasury activities,
wholesale funding activities, securities portfolio, community
development assets and other unallocated assets, liabilities,
revenues, provision for credit losses and expenses not attributed
to our Consumer Banking or Commercial Banking segments.

2) Includes held for sale.

 

Other net income of $45 million in first quarter 2017 increased $27
million versus fourth quarter 2016. First quarter results include a $23
million benefit, or $0.04 per diluted common share, related to
settlement of state tax matters that lowered the effective tax rate by
5.2 per cent. Other reflects net interest income of $21 million in first
quarter 2017 versus zero net interest income in fourth quarter 2016,
reflecting higher residual funds transfer pricing and higher investment
income, partially offset by the lower benefit of swaps and higher
funding costs. Noninterest income of $25 million decreased $3 million,
largely reflecting fourth quarter gains not recorded in first quarter
2017. Noninterest expense of $17 million increased $6 million, driven by
the impact of seasonally higher payroll taxes and higher incentives.
Provision for credit losses of $13 million increased $5 million as first
quarter 2017 included a reserve build, partially offset by lower net
charge-offs in non-core, compared to a reserve release in fourth quarter
2016.

Other net income in first quarter 2017 increased $26 million versus
first quarter 2016, driven by a $23 million benefit, or $0.04 per
diluted common share, related to settlement of state tax matters that
lowered the effective tax rate by 5.2 per cent. Net interest income
decreased $2 million, reflecting higher funding costs and the lower
benefit of swaps, partially offset by higher investment income and
higher residual funds transfer pricing. Noninterest income remained
relatively stable. Noninterest expense increased $9 million from first
quarter 2016, largely reflecting increased depreciation expense related
to the transfer of leases from Commercial to non-core. Provision for
credit losses decreased, reflecting lower net charge-offs in non-core.

Corresponding Financial Tables and Information

Investors are encouraged to review the foregoing summary and discussion
of Citizens' earnings and financial condition in conjunction with the
detailed financial tables and other information available on the
Investor Relations portion of the company's website at www.citizensbank.com/about-us.

Conference Call

CFG management will host a live conference call today with details
as follows:
 
Time:     9:00 am ET
 
Dial-in: (800) 230-1092, conference ID 416825

Webcast/Presentation: The live webcast will be available at http://investor.citizensbank.com
under Events & Presentations

Replay Information: A replay of the conference call will be available
beginning at 11:00 am ET on April 20 through May 20, 2017. Please dial
(800) 475-6701 and enter access code 416825. The webcast replay will be
available at http://investor.citizensbank.com
under Events & Presentations.

About Citizens Financial Group, Inc.

Citizens Financial Group, Inc. is one of the nation's oldest and largest
financial institutions, with $150.3 billion in assets as of March 31,
2017. Headquartered in Providence, Rhode Island, Citizens offers a broad
range of retail and commercial banking products and services to
individuals, small businesses, middle-market companies, large
corporations and institutions. In Consumer Banking, Citizens helps its
retail customers "bank better" with mobile and online banking, a 24/7
customer contact center and the convenience of approximately 3,200 ATMs
and approximately 1,200 Citizens Bank branches in 11 states in the New
England, Mid-Atlantic and Midwest regions. Citizens also provides wealth
management, mortgage lending, auto lending, student lending and
commercial banking services in select markets nationwide. In Commercial
Banking, Citizens offers corporate, institutional and not-for-profit
clients a full range of wholesale banking products and services
including lending and deposits, capital markets, treasury services,
foreign exchange and interest hedging, leasing and asset finance,
specialty finance and trade finance. Citizens operates through its
subsidiaries Citizens Bank, N.A. and Citizens Bank of Pennsylvania as
Citizens Bank, Citizens Commercial Banking and Citizens One. Additional
information about Citizens and its full line of products and services
can be found at www.citizensbank.com.

Key Performance Metrics and Non-GAAP Financial
Measures and Reconciliations

(in millions, except
share, per-share and ratio data)

Key Performance Metrics:

Our management team uses key performance metrics (KPMs) to gauge our
performance and progress over time in achieving our strategic and
operational goals and also in comparing our performance against our
peers. We have established the following financial targets, in addition
to others, as KPMs, which are utilized by our management in measuring
our progress against financial goals and as a tool in helping assess
performance for compensation purposes. These KPMs can largely be found
in our periodic reports which are filed with the Securities and Exchange
Commission, and are supplemented from time to time with additional
information in connection with our quarterly earnings releases.

Our key performance metrics include:

Return on average tangible common equity (ROTCE);

Return on average total tangible assets (ROTA);

Efficiency ratio;

Operating leverage; and

Common equity tier 1 capital ratio (Basel III fully phased-in basis).

In establishing goals for these KPMs, we determined that they would be
measured on a management-reporting basis, or an operating basis, which
we refer to externally as "Adjusted" or "Underlying" results. We believe
that these "Adjusted" or "Underlying" results provide the best
representation of our financial progress towards these goals as they
exclude items that our management does not consider indicative of our
on-going financial performance. KPMs that contain "Adjusted" or
"Underlying" results are considered non-GAAP financial measures.

Non-GAAP Financial Measures:

This document contains non-GAAP financial measures. The following tables
present reconciliations of our non-GAAP measures. These reconciliations
exclude "Adjusted" or "Underlying" items, which are included, where
applicable, in the financial results presented in accordance with GAAP.
"Adjusted" or "Underlying" items include certain items that may occur in
a reporting period which management does not consider indicative of
on-going financial performance.

The non-GAAP measures presented in the following tables include
reconciliations to the most directly comparable GAAP measures and are:
"noninterest income", "total revenue", "noninterest expense",
"pre-provision profit", "income before income tax expense", "income tax
expense", "effective income tax rate", "net income", "net income
available to common stockholders", "other income", "salaries and
employee benefits", "outside services", "amortization of software
expense", "other operating expense", "net income per average common
share", "return on average common equity" and "return on average total
assets".

We believe these non-GAAP measures provide useful information to
investors because these are among the measures used by our management
team to evaluate our operating performance and make day-to-day operating
decisions. In addition, we believe "Adjusted" or "Underlying" items in
any period do not reflect the operational performance of the business in
that period and, accordingly, it is useful to consider these line items
with and without "Adjusted" or "Underlying" items. We believe this
presentation also increases comparability of period-to-period results.

Other companies may use similarly titled non-GAAP financial measures
that are calculated differently from the way we calculate such measures.
Accordingly, our non-GAAP financial measures may not be comparable to
similar measures used by other companies. We caution investors not to
place undue reliance on such non-GAAP measures, but instead to consider
them with the most directly comparable GAAP measure. Non-GAAP financial
measures have limitations as analytical tools, and should not be
considered in isolation, or as a substitute for our results as reported
under GAAP.

 

Key performance metrics, non-GAAP financial measures and
reconciliations

(in millions, except share, per-share and
ratio data)

                 
QUARTERLY TRENDS
1Q17 Change
1Q17   4Q16   3Q16   2Q16   1Q16 4Q16 1Q16
$ % $ %
Noninterest income, adjusted:
Noninterest income (GAAP) $ 379 $ 377 $ 435 $ 355 $ 330 $ 2 1 % $ 49 15 %
Less: Notable items       67            
Noninterest income, adjusted (non-GAAP) $ 379 $ 377 $ 368   $ 355 $ 330 $ 2   1 % $ 49 15 %
Total revenue, adjusted:
Total revenue (GAAP) A $ 1,384 $ 1,363 $ 1,380 $ 1,278 $ 1,234 $ 21 2 % $ 150 12 %
Less: Notable items       67            
Total revenue, adjusted (non-GAAP) B $ 1,384 $ 1,363 $ 1,313   $ 1,278 $ 1,234 $ 21   2 % $ 150 12 %
Noninterest expense, adjusted:
Noninterest expense (GAAP) C $ 854 $ 847 $ 867 $ 827 $ 811 $ 7 1 % $ 43 5 %
Less: Notable items       36            
Noninterest expense, adjusted (non-GAAP) D $ 854 $ 847 $ 831   $ 827 $ 811 $ 7   1 % $ 43 5 %
Pre-provision profit:
Total revenue (GAAP) A $ 1,384 $ 1,363 $ 1,380 $ 1,278 $ 1,234 $ 21 2 % $ 150 12 %
Noninterest expense (GAAP) C   854   847   867     827   811   7   1   43 5
Pre-provision profit (GAAP) $ 530 $ 516 $ 513   $ 451 $ 423 $ 14   3 % $ 107 25 %
Pre-provision profit, adjusted:
Total revenue, adjusted (non-GAAP) B $ 1,384 $ 1,363 $ 1,313 $ 1,278 $ 1,234 $ 21 2 % $ 150 12 %
Less: Noninterest expense, adjusted (non-GAAP) D   854   847   831     827   811   7   1   43 5
Pre-provision profit, adjusted (non-GAAP) $ 530 $ 516 $ 482   $ 451 $ 423 $ 14   3 % $ 107 25 %
Income before income tax expense, adjusted:
Income before income tax expense (GAAP) $ 434 $ 414 $ 427 $ 361 $ 332 $ 20 5 % $ 102 31 %
Less: Income before income tax expense (benefit) related to notable
items
      31            
Income before income tax expense, adjusted (non-GAAP) $ 434 $ 414 $ 396   $ 361 $ 332 $ 20   5 % $ 102 31 %
Income tax expense and effective income tax rate, adjusted:
Income tax expense (GAAP) $ 114 $ 132 $ 130 $ 118 $ 109 ($18 ) (14 %) $ 5 5 %
Less: Income tax expense (benefit) related to notable items       12            
Income tax expense, adjusted (non-GAAP) $ 114 $ 132 $ 118   $ 118 $ 109   ($18 ) (14 %) $ 5 5 %
Net income, adjusted:
Net income (GAAP) E $ 320 $ 282 $ 297 $ 243 $ 223 $ 38

13

%

$ 97 43 %
Add: Notable items, net of income tax expense (benefit)       (19 )          
Net income, adjusted (non-GAAP) F $ 320 $ 282 $ 278   $ 243 $ 223 $ 38   13 % $ 97 43 %
Net income available to common stockholders, adjusted:
Net income available to common stockholders (GAAP) G $ 313 $ 282 $ 290 $ 243 $ 216 $ 31 11 % $ 97 45 %
Add: Notable items, net of income tax expense (benefit)       (19 )          
Net income available to common stockholders, adjusted (non-GAAP) H $ 313 $ 282 $ 271   $ 243 $ 216 $ 31   11 % $ 97 45 %
 
 

Key performance metrics, non-GAAP financial measures and
reconciliations

(in millions, except share, per-share and
ratio data)

               
QUARTERLY TRENDS
    1Q17 Change
1Q17   4Q16   3Q16   2Q16   1Q16 4Q16 1Q16
$/bps % $/bps %
Operating leverage:
Total revenue (GAAP) A $ 1,384 $ 1,363 $ 1,380 $ 1,278 $ 1,234 $ 21 1.54 % $ 150 12.16 %
Less: Noninterest expense (GAAP) C 854 847 867 827 811 7 0.83   43 5.30  
Operating leverage 0.71 % 6.86 %
Operating leverage, adjusted:
Total revenue, adjusted (non-GAAP) B $ 1,384 $ 1,363 $ 1,313 $ 1,278 $ 1,234 $ 21 1.54 % $ 150 12.16 %
Less: Noninterest expense, adjusted (non-GAAP) D 854 847 831 827 811 7 0.83   43 5.30  
Operating leverage, adjusted (non-GAAP) 0.71 % 6.86 %
Efficiency ratio and efficiency ratio, adjusted:
Efficiency ratio C/A 61.68 % 62.18 % 62.88 % 64.71 % 65.66 % (50 )

bps

(398 ) bps
Efficiency ratio, adjusted (non-GAAP) D/B 61.68 62.18 63.31 64.71 65.66 (50 ) bps (398 ) bps
Return on average common equity and return on average common
equity, adjusted:
Average common equity (GAAP) I $ 19,460 $ 19,645 $ 19,810 $ 19,768 $ 19,567 ($185 ) (1 %) ($107 ) (1 %)
Return on average common equity G/I 6.52 % 5.70 % 5.82 % 4.94 % 4.45 % 82 bps 207 bps
Return on average common equity, adjusted (non-GAAP) H/I 6.52 5.70 5.44 4.94 4.45 82 bps 207 bps
Return on average tangible common equity and return on average
tangible common equity, adjusted:
Average common equity (GAAP) I $ 19,460 $ 19,645 $ 19,810 $ 19,768 $ 19,567 ($185 ) (1 %) ($107 ) (1 %)
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876
Less: Average other intangibles (GAAP) 1 1 2 3 (1 ) (100 ) (3 ) (100 )
Add: Average deferred tax liabilities related to goodwill (GAAP)   531     523     509     496     481     8   2   50   10
Average tangible common equity J $ 13,115   $ 13,291   $ 13,442   $ 13,386   $ 13,169     ($176 ) (1 %)   ($54 ) %
Return on average tangible common equity G/J 9.68 % 8.43 % 8.58 % 7.30 % 6.61 % 125 bps 307 bps
Return on average tangible common equity, adjusted (non-GAAP) H/J 9.68 8.43 8.02 7.30 6.61 125 bps 307 bps
Return on average total assets and return on average total
assets, adjusted:
Average total assets (GAAP) K $ 148,786 $ 147,315 $ 144,399 $ 142,179 $ 138,780 $ 1,471 1 % $ 10,006 7 %
Return on average total assets E/K 0.87 % 0.76 % 0.82 % 0.69 % 0.65 % 11 bps 22 bps
Return on average total assets, adjusted (non-GAAP) F/K 0.87 0.76 0.77 0.69 0.65 11 bps 22 bps
Return on average total tangible assets and return on average
total tangible assets, adjusted:
Average total assets (GAAP) K $ 148,786 $ 147,315 $ 144,399 $ 142,179 $ 138,780 $ 1,471 1 % $ 10,006 7 %
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876
Less: Average other intangibles (GAAP) 1 1 2 3 (1 ) (100 ) (3 ) (100 )
Add: Average deferred tax liabilities related to goodwill (GAAP)   531     523     509     496     481     8   2   50   10
Average tangible assets L $ 142,441   $ 140,961   $ 138,031   $ 135,797   $ 132,382   $ 1,480   1 % $ 10,059   8 %
Return on average total tangible assets E/L 0.91 % 0.79 % 0.86 % 0.72 % 0.68 % 12 bps 23 bps
Return on average total tangible assets, adjusted (non-GAAP) F/L 0.91 0.79 0.80 0.72 0.68 12 bps 23 bps
 
 

Key performance metrics, non-GAAP financial measures and
reconciliations

(in millions, except share, per-share and
ratio data)

               
QUARTERLY TRENDS
    1Q17 Change
1Q17   4Q16   3Q16   2Q16   1Q16 4Q16 1Q16
$/bps % $/bps %
Tangible book value per common share:
Common shares - at end of period (GAAP)

M

509,515,646 511,954,871 518,148,345 529,094,976 528,933,727 (2,439,225 ) % (19,418,081 ) (4 %)
Common stockholders' equity (GAAP) $ 19,600 $ 19,499 $ 19,934 $ 19,979 $ 19,718 $ 101 1 ($118 ) (1 )
Less: Goodwill (GAAP) 6,876 6,876 6,876 6,876 6,876
Less: Other intangible assets (GAAP) 1 1 2 3 (1 ) (100 ) (3 ) (100 )
Add: Deferred tax liabilities related to goodwill (GAAP)   534     532     519     507     494     2     40   8
Tangible common equity N $ 13,258   $ 13,154   $ 13,576   $ 13,608   $ 13,333   $ 104   1 %   ($75 ) (1 %)
Tangible book value per common share N/M $ 26.02 $ 25.69 $ 26.20 $ 25.72 $ 25.21 $ 0.33 1 % $ 0.81 3 %
Net income per average common share - basic and diluted, adjusted:
Average common shares outstanding - basic (GAAP) O 509,451,450 512,015,920 519,458,976 528,968,330 528,070,648 (2,564,470 ) (1 %) (18,619,198 ) (4 %)
Average common shares outstanding - diluted (GAAP) P 511,348,200 513,897,085 521,122,466 530,365,203 530,446,188 (2,548,885 ) (19,097,988 ) (4 )
Net income available to common stockholders (GAAP) G $ 313 $ 282 $ 290 $ 243 $ 216 $ 31 11 $ 97 45
Net income per average common share - basic (GAAP) G/O 0.61 0.55 0.56 0.46 0.41 0.06 11 0.20 49
Net income per average common share - diluted (GAAP) G/P 0.61 0.55 0.56 0.46 0.41 0.06 11 0.20 49
Net income available to common stockholders, adjusted (non-GAAP) H 313 282 271 243 216 31 11 97 45
Net income per average common share - basic, adjusted (non-GAAP) H/O 0.61 0.55 0.52 0.46 0.41 0.06 11 0.20 49
Net income per average common share - diluted, adjusted (non-GAAP) H/P 0.61 0.55 0.52 0.46 0.41 0.06 11 0.20 49
Pro forma Basel III fully phased-in common equity tier 1 capital
ratio
1:
Common equity tier 1 capital (regulatory) $ 13,941 $ 13,822 $ 13,763 $ 13,768 $ 13,570
Less: Change in DTA and other threshold deductions (GAAP)                   1       1  
Pro forma Basel III fully phased-in common equity tier 1 capital Q $ 13,941   $ 13,822     $ 13,763     $ 13,767     $ 13,569  
Risk-weighted assets (regulatory general risk weight approach) $ 124,881 $ 123,857 $ 121,612 $ 119,492 $ 116,591
Add: Net change in credit and other risk-weighted assets (regulatory)   247     244       228       228       232  
Pro forma Basel III standardized approach risk-weighted assets R $ 125,128   $ 124,101     $ 121,840     $ 119,720     $ 116,823  
Pro forma Basel III fully phased-in common equity tier 1 capital
ratio1
Q/R 11.1 % 11.1 % 11.3 % 11.5 % 11.6 %

1 Basel III ratios assume certain definitions impacting
qualifying Basel III capital, which otherwise will phase in
through 2019, are fully phased-in. Ratios also reflect the
required US Standardized methodology for calculating RWAs,
effective January 1, 2015.

 
 

Key performance metrics, non-GAAP financial measures and
reconciliations

(in millions, except share, per-share and
ratio data)

                   
QUARTERLY TRENDS
1Q17 Change
1Q17   4Q16   3Q16   2Q16   1Q16 4Q16 1Q16
$ % $ %
Other income, adjusted
Other income (GAAP) $ 24 $ 25 $ 87 $ 15 $ 20 ($1 ) (4 %) $ 4 20 %
Less: Notable items       67          
Other income, adjusted (non-GAAP) $ 24 $ 25 $ 20 $ 15 $ 20   ($1 ) (4 %) $ 4 20 %
Salaries and employee benefits, adjusted:
Salaries and employee benefits (GAAP) $ 444 $ 420 $ 432 $ 432 $ 425 $ 24 6 % $ 19 4 %
Less: Notable items       11          
Salaries and employee benefits, adjusted (non-GAAP) $ 444 $ 420 $ 421 $ 432 $ 425 $ 24   6 % $ 19 4 %
Outside services, adjusted:
Outside services (GAAP) $ 91 $ 98 $ 102 $ 86 $ 91 ($7 ) (7 %) $ %
Less: Notable items       8          
Outside services, adjusted (non-GAAP) $ 91 $ 98 $ 94 $ 86 $ 91   ($7 ) (7 %) $ %
Occupancy, adjusted:
Occupancy (GAAP) $ 82 $ 77 $ 78 $ 76 $ 76 $ 5 6 % $ 6 8 %
Less: Notable items                
Occupancy, adjusted (non-GAAP) $ 82 $ 77 $ 78 $ 76 $ 76 $ 5   6 % $ 6 8 %
Equipment expense, adjusted:
Equipment expense (GAAP) $ 67 $ 69 $ 65 $ 64 $ 65 ($2 ) (3 %) $ 2 3 %
Less: Notable items                
Equipment expense, adjusted (non-GAAP) $ 67 $ 69 $ 65 $ 64 $ 65   ($2 ) (3 %) $ 2 3 %
Amortization of software, adjusted:
Amortization of software (GAAP) $ 44 $ 44 $ 46 $ 41 $ 39 $ % $ 5 13 %
Less: Notable items       3          
Amortization of software, adjusted (non-GAAP) $ 44 $ 44 $ 43 $ 41 $ 39 $   % $ 5 13 %
Other operating expense, adjusted:
Other operating expense (GAAP) $ 126 $ 139 $ 144 $ 128 $ 115 ($13 ) (9 %) $ 11 10 %
Less: Notable items       14          
Other operating expense, adjusted (non-GAAP) $ 126 $ 139 $ 130 $ 128 $ 115   ($13 ) (9 %) $ 11 10 %
 
 

Key performance metrics, non-GAAP financial measures and
reconciliations

(in millions, except share, per-share and
ratio data)

               
 
THREE MONTHS ENDED MAR 31, THREE MONTHS ENDED DEC 31,

2017

2016

Consumer
Banking

Commercial
Banking

Other Consolidated

Consumer
Banking

Commercial
Banking

Other

Consolidated

Net income available to common stockholders:
Net income (loss) (GAAP) A $ 95 $ 180 $ 45 $ 320 $ 92 $ 172 $ 18 $ 282
Less: Preferred stock dividends           7     7                  
Net income available to common stockholders B $ 95   $ 180   $ 38   $ 313   $ 92   $ 172   $ 18   $ 282  
Return on average tangible common equity:
Average common equity (GAAP) $ 5,460 $ 5,528 $ 8,472 $ 19,460 $ 5,275 $ 5,278 $ 9,092 $ 19,645
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 1 1
Add: Average deferred tax liabilities related to goodwill (GAAP)           531     531             523     523  
Average tangible common equity C $ 5,460   $ 5,528   $ 2,127   $ 13,115   $ 5,275   $ 5,278   $ 2,738   $ 13,291  
Return on average tangible common equity B/C 7.06 % 13.18 % NM 9.68 % 6.97 % 12.94 % NM 8.43 %
Return on average total tangible assets:
Average total assets (GAAP) $ 58,660 $ 49,243 $ 40,883 $ 148,786 $ 58,066 $ 48,024 $ 41,225 $ 147,315
Less: Average goodwill (GAAP) 6,876 6,876 6,876 6,876
Average other intangibles (GAAP) 1 1
Add: Average deferred tax liabilities related to goodwill (GAAP)           531     531             523     523  
Average tangible assets D $ 58,660   $ 49,243   $ 34,538   $ 142,441   $ 58,066   $ 48,024   $ 34,871   $ 140,961  
Return on average total tangible assets A/D 0.66 % 1.48 % NM 0.91 % 0.63 % 1.42 % NM 0.79 %
Efficiency ratio:
Noninterest expense (GAAP) E $ 647 $ 190 $ 17 $ 854 $ 649 $ 187 $ 11 $ 847
Net interest income (GAAP) 638 346 21 1,005 639 347 986
Noninterest income (GAAP)   220     134     25     379     227     122     28     377  
Total revenue (GAAP) F $ 858   $ 480   $ 46   $ 1,384   $ 866   $ 469   $ 28   $ 1,363  
Efficiency ratio E/F 75.41 % 39.80 % NM 61.68 % 74.90 % 39.83 % NM 62.18 %
 
THREE MONTHS ENDED SEPT 30, THREE MONTHS ENDED JUNE 30,

2016

2016

Consumer
Banking

Commercial
Banking

Other Consolidated  

Consumer
Banking

Commercial
Banking

Other Consolidated
Net income available to common stockholders:
Net income (loss) (GAAP) A $ 92 $ 162 $ 43 $ 297